EUR/USD Holds Below 1.12 Ahead of Fed and ECB Rate Decisions

The euro softened to around 1.1165 against the dollar in early European trading on Tuesday, extending losses after France's fiscal concerns renewed financial stress across the Eurozone. The pair failed to sustain a bounce above 1.12 on Monday despite intraday attempts, underscoring persistent selling pressure. Market attention now shifts to two central bank decisions that will define this week's trajectory for EUR/USD.

French sovereign debt worries continue to weigh on sentiment even after Moody's maintained the country's Aa3 rating on Friday. The decision offered mechanical relief for passive index obligations but did little to address underlying fiscal challenges. Protests in France and Italy persisted over the weekend, while OAT-Bund spreads remain elevated despite some narrowing. High energy prices compound the euro's structural headwinds, with winter supply concerns lingering in the background.

The dollar found support as the Treasury yield curve flattened slightly, with short-end rates rising while long-end yields edged lower. Brent crude prices pulled back from a near six-month high as diplomatic activity around the US-Iran conflict offered some relief to energy markets. EUR/USD swap differentials have narrowed by roughly 10 basis points in two-year tenors, yet a risk premium of 1 to 2 percent appears justified given the Eurozone's fiscal and growth outlook.

What the calendar says

The Federal Reserve announces its policy decision on 28 October 2026 at 18:00 UTC. Markets are pricing in an 89.5 percent probability that the Federal Open Market Committee will hold the benchmark rate steady at the current target range of 3.75 to 4.0 percent. The statement and Chair Powell's press conference will be scrutinized for any shift in tone regarding the December path, particularly given recent inflation persistence and tight labour markets. A hawkish hold could reinforce dollar strength across the board.

The European Central Bank follows on 29 October 2026 at 12:15 UTC, widely expected to leave the deposit facility rate unchanged at 2.50 percent. President Lagarde's press conference may prove more consequential than the decision itself, with markets watching for any acknowledgment of fiscal spillovers and their impact on growth forecasts. Energy price pressures complicate the inflation narrative, while sovereign bond volatility limits the ECB's flexibility. A December 25 basis point hike remains priced into money markets, though escalating French bond spreads could force a reassessment if conditions deteriorate further.

Looking ahead, the US jobs report arrives on 6 November 2026 at 12:30 UTC, providing the next major data point for both currencies. Our full schedule is available on the economic calendar.

Technical picture

The hourly chart shows EUR/USD consolidating in a 1.1160 to 1.1200 range after breaking below the 1.12 handle. Price holds beneath the descending 20-day simple moving average, maintaining a near-term bearish bias. The Bollinger Bands framework places immediate support at the lower band near 1.1140, with the middle band at 1.1215 offering first resistance. The Relative Strength Index sits at 33.6, hovering just above oversold territory but still signaling downside momentum.

A confirmed close below 1.1140 would expose the 1.1100 psychological level and the 1.1080 to 1.1100 confluence zone that aligns with the 200-week simple moving average. Further weakness could test the May 2025 low of 1.0951. On the upside, buyers need to reclaim 1.1215 to encounter downside momentum, with the upper Bollinger band near 1.1295 and the 100-day simple moving average at 1.1445 acting as more distant caps. The technical structure favours a test of support before any sustainable recovery attempt.